Nacha, Fed Banks Pledge $1.4M to Promote Electronic Payments

The National Automated Clearing House Association and the Federal Reserve banks announced that they are teaming up to promote electronic payments.

It is the latest in a series of partnership agreements by two entities that do not ordinarily take a marketing posture, and they are hoping to top previous efforts in size, scope, and results.

The Federal Reserve banks are committing about $1 million toward the coordinated, national campaign.

The association, which is holding its annual conference here this week, will kick in up to $400,000.

Nacha, the rulemaking and coordinating body for the regional associations and financial institutions in the ACH network, spent about $345,000 last year to promote direct deposits and other aspects of the electronic payment system.

"This will be a program with more resources, more coordination, and a lot more participation," said Elliott C. McEntee, Nacha's president and chief operating officer.

Sarah Green, senior vice president of the Federal Reserve Bank of Boston, said the central banking system was spurred to action by a recent report on its future in payment systems.

The report, by a committee headed by Federal Reserve Board vice chairman Alice Rivlin, recommended that the Fed use its clout to encourage more displacement of paper payments by electronics.

The Fed put the ACH network in place in the 1970s to reduce banks' check-processing burdens, using government payments such as Social Security benefits to jump-start the system.

Two-thirds of Social Security recipients get their checks electronically, but despite similar progress in parts of the private and public sectors, the ACH network's 4.5 billion payments last year were dwarfed by 65 billion checks, a figure which is still growing.

"The emphasis in the Rivlin committee's recommendations is clearly on collaboration with the industry," Ms. Green said. "We have worked with Nacha in the past. This represents a significant increase in commitment."

Mr. McEntee said the campaign will complement a similar Fed promotional effort with the Treasury Department.

Those agencies are spending about $2 million to promote direct deposits and financial electronic data interchange. EDI, the automation of both funds and information transfers, is expected to be in ever-greater demand as the deadline nears for the federal government's EFT '99 electronic payment mandate.

"You will have the private sector, the Treasury, and Federal Reserve all sending out messages promoting different products," Mr. McEntee said.

There remains a difference of opinion on how to finance such collaborative marketing, though all parties agree it is sorely needed.

Many in the private sector favor a surcharge on ACH transactions to fund the program.

The Federal Reserve, which processes about 80% of the volume, has opposed any such price increase, but it may yet be open to some form of assessment that might resemble how the credit card associations pay for advertising.

"I think a number of issues still need to be addressed relative to a different funding mechanism," Ms. Green said. "We wouldn't dismiss any ideas about potential solutions."

George F. Thomas, senior vice president of the New York Clearing House Association, said he viewed the $1.4 million commitment as a good start.

He said that past Nacha-Fed programs were sporadic and uncoordinated because they operated according to regional Fed banks' and ACH associations' whims.